Physical gas prices on average plunged Tuesday as temperature forecasts called for moderation. Particularly hard hit were Northeast points, but quotes elsewhere fell as well. One point in the Marcellus did manage a gain.
California and the Rockies tumbled as weather was expected to be mild in California and power demand eased. At the close of futures trading August had eased five-tenths of a cent to $2.796 and September had slipped seven-tenths of a cent to $2.786. August crude oil added 79 cents to $89.22/bbl.
Next-day prices plunged on Michcon and Consumers, but it was not enough to tickle the fancy of gas buyers. "We decided not to buy, thinking prices may come down even more by [Wednesday]," said a Midwest marketer. "The prices are pretty close to [July] index."
A huge drop in temperatures was also in play. "It was predicted we would be up to 104 today, but it is supposed to drop into the 80s Wednesday along with some storms."
Tom Skilling of the Chicago Weather Center predicted Tuesday's high in Chicago of 100 would drop to 90 on Wednesday. "A frontal passage Tuesday night introduces in coming days the potential for desperately needed though scattered clusters of thunderstorms. What is going to be interesting to monitor is the stall-out of the front just south of Chicago Wednesday and Wednesday night and the potential for a wave to move along it," he posted on his Facebook page.
Quotes at Upper Great Lakes points fell by double digits. Michcon, Chicago Citygate, Consumers and Alliance were all about a dime lower.
Northeast points were also in high-volatility mode. Gas delivered to the Algonquin Citygate and quotes on Tennessee Zone 6 200 L were each down by about $1.90. Deliveries to Iroquois Waddington were close to 40 cents lower. Deliveries to Tennessee Zone 4 Marcellus did manage to post the day's sole gain of just under 20 cents.
Next-day prices throughout California and the Rockies swooned as analysts pointed to mild weather and low power usage.
"PG&E Citygate traded $2.70, and SoCal Citygate traded $2.77. It's not too often we trade above PG&E Citygate," said a southern California analyst. "It looks like there is no chance of high prices. In Walnut Creek, CA, it is 74 degrees; that is very nice. There should be no [power] loads.
"Supply demand on the CAISO [California Independent System Operator] is showing 30,000 MW; that is not much, not much at all. That's hardly anything. I would think the average for this time would be about 36,000 MW."
CAISO forecast peak load for Wednesday at 33,461 MW.
IntercontinentalExchange reported that day-ahead LMP (locational marginal prices) for the NP-15 trading point fell 47 cents to a nominal $26.47/MWh and power into SP-15 rose 59 cents to $31.13/MWh.
Both California and Rockies prices tumbled. Deliveries to Malin were off by about a quarter, and quotes on PG&E Citygate fell more than 20 cents. SoCal Citygate and SoCal Border were down about 20 cents as well, and El Paso Mainline S skidded nearly 30 cents.
Opal, CIG Mainline, Cheyenne and Kern River were all off approximately 20 cents.
A Midwest analyst sees prices holding around the $2.81 level, but notes that "the latest NOAA forecast is now showing that a much larger area of the country will experience extremely hot temperatures for the rest of the month of July (versus the last few daily forecasts)...The call on natgas for power generation will be above normal during the next several weeks."
Technical analysts see nothing to change the current trends. "To trigger a run to the $3.600 area from here, $3.060 must be exceeded," said Brian LaRose, an analyst with United-ICAP. "To trigger a deeper selloff from here, the neckline of our proposed head and shoulders bottom must be decisively broken. The neckline cuts at 2.776 Tuesday. Between support and resistance is neutral territory. At this time we suggest a defensive stance until the trend becomes more definitive."
A Chicago analyst hinted that Monday's weakness may have been due to a change in the economics of coal-to-gas-to-coal switching for electric power generation. "In addition, coal-to-natgas switching is more biased to the coal side. Over the last 12 trading days the economics have been favorable to coal for power generation seven of the 12 days. The economic trend over the last three weeks or so has been moving back toward coal."
On paper that may be the case, but the economic realities are that it is very expensive to switch back to coal. To fire up a 500 MW coal unit can cost upwards of $1 million. Expensive fuel oil must be burned to heat up boilers. More than likely, any switching back to coal will not take place until utilities see the need to start baseloading coal generation as the heating season approaches.
"At a minimum, utilities will not be replacing any additional coal power generation with natgas, and in some areas I would expect utilities to switch some power generation demand back to coal," the analyst said. For those willing to incur the heavy start-up costs, that may be true.
Overnight weather forecasts were little changed. MDA Information Systems in its six- to 10-day outlook said, "the Midwest remains the focal point of the strongest heat early on, where widespread much-aboves are favored under a broad upper level ridge. Changes were relatively minor in regards to this peak heat, though there were some detail differences elsewhere."
The National Hurricane Center in its 8 a.m. EDT report said it was following three Atlantic tropical waves, but no tropical cyclones were expected in the succeeding 48 hours for the North Atlantic, Gulf or Caribbean.
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